Richard Harrington: Clause 11 requires a scheme funder to be a legal person who carries out only activities that directly relate to the master trust. The policy intention is to ensure that the financial position of scheme funders, and their financial arrangements with master trusts, are transparent and clear to the regulator. That will enable the regulator to make an assessment of the scheme’s financial sustainability when deciding whether to authorise the master trust, and will support the regulator’s ongoing financial supervision of the scheme, post-authorisation.
In debate in the other place, and in representations received from stakeholders, the concern was raised that the scheme funder requirements would lead to costly corporate restructuring and so might undermine the supporting of master trusts through the other lines of business that some master trust providers carry out. The Government amendments would make two changes to the scheme funder requirements in clause 11 that we believe address this issue. The first would allow an entity to be a scheme funder and, therefore, carry out activities in relation to more than one master trust, and also carry out activities, such as due diligence, where it is considering becoming the scheme funder of a new master trust scheme. The second would provide a power for the Secretary of State to create exceptions to the requirement for the scheme funder’s activities to be limited to the master trust. Scheme funders who meet the requirements that are to be prescribed in regulations will be able to carry out activities unrelated to master trusts—for example, providing shared services to other schemes.
We hope that this easement will minimise disruption to existing corporate structures and shared service arrangements. In addition, enabling scheme funders to carry out activities in relation to more than one master trust may facilitate consolidation in the market by making it easier for a scheme funder to rescue a failing master trust.
The first regulations made under the power under clause 11(3)(a) are to be subject to the affirmative procedure; subsequent regulations will be subject to the negative procedure. That is obviously to provide the necessary scrutiny in the first instance after the consultation. Given the importance of scheme funders to the financial sustainability of master trusts, and the potential impact on scheme funders of the requirements in clause 11, we recognise that the regulations first exercising the power to set out exceptions to the requirement should be subject to parliamentary scrutiny and debate.